Tax Credits for Small Employers Under the Affordable Care Act

The IRS has issued a News Release explaining to small businesses how they can determine whether they qualify for tax credits pursuant to the Affordable Care Act. These credits are granted to small employers who provide health insurance, as well as additional coverage, such as dental and vision, to employees. The IRS also issued Notice 2010-44 (pdf), which provides more detailed information, including how the credit is calculated. The Notice also provides more than a dozen examples demonstrating how the credit will work.

The tax credits granted pursuant to the Affordable Care Act are intended to provide tax incentives to small businesses, defined in this instance as having fewer than 25 full-time employees, whose employees earn, on average, less than $50,000 per year. These benefits are available to those small businesses who provide health insurance benefits for which the company pays at least half of the annual cost of individual coverage in 2010. Because the credits are based upon the number of full-time employees, employers with more than 25 employees, some of whom are part-time, may still qualify. Owners of the small business and their family members are not included in the definition of employees.

The credit will range from 25% to 35% of premiums paid by small business employers for tax years 2010 through 2013. Tax-exempt organizations that qualify may receive a credit of up to 25% of the premiums paid. The credit for small businesses will be included as part of the general business credit for 2010. The IRS is still working on the procedure by which tax-exempt entities may claim the credit.

This post was written by guest blogger, Jennifer R. Noel. Jenn is an associate in Young Conaway’s Tax, Trusts & Estates Section, where she advises clients with respect to local, state, federal, and international tax issues, the legal aspects of the formation and operation of small and emerging growth business enterprises, and the preparation and negotiation of commercial contracts.

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